“Bad news for bad developers” – NSW first with 10 year apartment … – The Fifth Estate

by | Dec 24, 2022 | Engineer

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The Fifth Estate
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NSW is the first jurisdiction in Australia to introduce 10 year liability insurance, a new insurance product that enables owners’ corporations to have serious defects fixed up to 10 years after an apartment building is first occupied.
According to New South Wales Building Commissioner David Chandler, one in five developers remain risky in NSW. 
Around 70-80 per cent of newly constructed buildings in Australia have defects, with 39 per cent having defects in common property, according to surveys carried out by the NSW government – which negatively affects the value of residences. 
The new insurance policy aims to improve the experience of apartment buyers in NSW and encourage a change in the market towards higher quality developments. 
Under a decennial scheme, developers can purchase a policy that will cover major defects for 10 years without the entire premium paid upfront. 
Upon completion the policy transfers to the strata committee for the benefit of the purchasers. If any major defects are reported, strata will then be able to lodge a claim against the insurer for assessment. 
The voluntary policy would cover critical parts of a building’s common property, including the building’s structure, fire safety systems, building services, and waterproofing.
Minister for Fair Trading Victor Dominello and the NSW Department of Customer Service have accepted Resilience Insurance, a new managing general agent, as one of the first to offer decennial (10 year) liability insurance as a form of security under the Strata Building Bond and Inspections Scheme developed in partnership the Insurance Council of Australia in NSW. 
The scheme is offered in many markets overseas, but this is the first time it has been offered in Australia. 
It is intended to be an insurance of first resort, allowing claims to be made as soon as a defect is identified. The developer will first have the opportunity to fix the defects. 
The policy will help buyers avoid lengthy and expensive litigation against developers, and means that buyers will be able to access compensation even if the developer folded after the build. 
The policy will be priced at 1.4 per cent of the cost of the building – less than the developer’s bond – and priced on the likelihood that the developer will be financially viable to fix the defects. 
In development of the scheme, researchers found that 70 per cent of buyers surveyed were prepared to pay a small increase in apartment cost to avoid substantial costs from defects at a later date. 
It’s intended to progressively replace the developer bond that developers are currently required to put in a trust account to pay for defects. 
NSW Building Commissioner David Chandler told The Fifth Estate that under the current system insurers were deserting the built environment industry due to uninsurable risk. 
“Good developers see the strata bond as positive for equity. Bad developers see the strata bond as a cost of construction – so defects are of no great consequence.”
The scheme is intended to bring the insurance industry back to the built environment. 
Mr Chandler said that developers with a bad track record will struggle to get insurance, or pay a higher premium – but that the policy will encourage a change in the market towards higher quality developments.
“This is bad news for bad developers,” Chandler said. 
“The only person who’s got to lose sleep is the bad developers – because they won’t be building in NSW.
“This will start to change market behaviour for the first time… In other states, it will be increasingly embarrassing for them not to have the same transactional support as in NSW.”  
The goal is to make NSW the most insurable market in Australia, and foster a competitive advantage.
“We have one clear message – we want to improve the experience of the purchaser of apartments in New South Wales,” Chandler said. 
“This will avoid pain and suffering.” 
Other reforms and tools intended to improve apartment quality and reduce risk are the Design and Building Practitioners Act, the Residential Apartment Building (Compliance and Enforcement Powers) Act, and the industry-led Independent Construction Industry Rating Tool (iCIRT). 
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‘Under a decennial scheme, developers can purchase a policy’ – a ‘voluntary policy’
given the typical dodgy developer declaring bankruptcy and walking away from their messes with no further liability, what would make this scheme more attractive to them than doing that ?

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